The nose in, hands out approach.
Different lifestyles and stages of life often drive the succession conversation. Generally, we see two different generations working together with different cashflow needs.
Typically, the existing or the current generation may be aged between 50 – 80yrs of age and tend to take less risk to allow more time for family and travel. To achieve this lifestyle, they will need to increase their cashflow by way of dividends, salaries or drawings. In contrast to this, the next generation is wanting to grow the business, and growth of any kind requires cashflow.
With different generations and life stages comes different business strategies based on what each generation is working to achieve. As an advisory business, we spend a lot of time working with clients to develop and agree upon an intergenerational business strategy, often working through tension and tough conversations around reinvesting back into the business and when to take cash out of the business.
Developing and agreeing upon a business strategy is a normal and difficult step to take, as there can be an underlying, natural conflict between the generations before taking the business and family relationships into consideration.
Ideally, we look for a nose in, hands out scenario from the existing generations, where they are adding value, involved where they want to be, and are more strategic, however they have their hands out of the day-to-day business. This positioning will allow the next generation to step up and execute the business activities and get the day to day done their way.
To execute this approach, families need to set the guardrails and provide governance to the next generation and outline what is important to them.
When working with families, we start by developing an Owner Strategy Statement, with three key steps:
Step 1. Define Your Purpose
- Defining the purpose of your family business.
- Why do you want to own your business together as a family?
Step 2. Set Your Owner Goals
- Specify your concrete goals.
- A great exercise we do to determine goals is to review the Owner Strategy triangle. You can choose to prioritise any two of the goals at the expense of the third.
Step 3. Create Owner Guardrails
- It’s time to translate your purpose and goals into specific measurements that can be used to make decisions.
- Guiderails can be financial or non-financial.
Once a family’s strategy and guardrails are set, the next generation will be able to take the lead on the business knowing what’s important to both generations.
To create an Owner Strategy Statement, contact us today; Contact Us – Sproutag